Glossary definition

What are the different types of compensation? (What is compensation?)

The different types of compensation are direct and indirect, including all of the payments, rewards and benefits that an employee may receive from their employer.

Compensation is an umbrella term for all the different elements offered, according to the organisation’s policies. Payroll and compensation management is an important HR function.

Direct compensation tends to be monetary.

It includes basic pay, commissions, overtime pay, bonuses, profit sharing and performance-related pay.

Indirect compensation is usually in the form of benefits.

Examples include stock options, travel, car, meal and housing allowances, dental and medical care and insurance, holiday and annual leave, pension schemes, discounts on the organisation’s own goods and services or those of other organisations, memberships, health and wellbeing services.